A Financial Advisor Is About to Build an Investment Portfolio

question 2

Essay

A financial advisor is about to build an investment portfolio for a client who has $100,000 to invest. The four investments available are A, B, C, and D. Investment A will earn 4 percent and has a risk of one "point" per $1,000 invested. B earns 6 percent with 2 risk points; C earns 9 percent with 6 risk points; and D earns 11 percent with a risk of 8. The client has put the following conditions on the investments: A is to be no more than one-third of the total invested. A cannot be less than 10 percent of the total investment. D cannot be more than C. Total risk points must be at or below 1,000. Let A be the amount invested in investment A, and define B, C, and D similarly. Formulate the linear programming model.

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Definitions:

Third-party Beneficiary Contract

A contract designed in such a way that a party not directly involved in the agreement receives a benefit from the contract.

Accord And Satisfaction

An arrangement between contracting parties whereby one of the parties substitutes a different performance for his or her original duty under the contract.

Novation

The act of replacing one obligation with another, effectively creating a new contract and releasing the original party from responsibility.

Assignment

The transfer of rights, property, or responsibilities from one party to another.